Paul Wallbank

Jan 192013
 

Last week there were a pair of interesting stories about the tech industry’s investment models.

The biggest story was the rumours that PC manufacturer Dell may go back to being a private company and the other was Survey Monkey’s raising of $800 million through debt and private capital.

Not your usual VC play

Polling company Survey Monkey’s capital raising is notable because it’s very different to the standard VC equity models used by Silicon Valley companies of this size.

Adding to the unusual nature of Survey Monkey’s behaviour is the declaration that they have no intention of becoming a public company. By ruling out an obvious way for investors to cash out of the business, they are making a clear statement that those putting money into the venture are doing so for the long term.

That Survey Monkey is also taking on debt indicates management believe they are going to have the cash flow to service payments. Not playing to the Greater Fool business model makes the online polling company very different to most of its contemporaries in Silicon Valley.

Dell going private

Survey Monkey’s $800 million is dwarfed by Dell’s market cap of 22 billion dollars so the talk of the PC manufacturer buying out its stock market shareholders and becoming a private company is big news indeed.

The New York Times Dealbook has a close look at the of the idea of taking Dell private and comes to the conclusion it’s not likely to happen.

While there are challenges, there is merit to the idea. Richard Branson delisted Virgin from the London Stock Market in 1988 after becoming frustrated with the short term objectives of his shareholders and there’s a possibility of Michael Dell may feel the same way.

For Dell, the challenge lies in moving away from the commodity PC sector. The Dell Hell debacle showed the company’s management has struggled with the realities of the low margin computer market and things aren’t getting better.

Dell themselves are steadily moving away from PCs with bigger investments in services and other computer hardware sectors.

Project Ophelia, a USB stick sized computer running Google’s Android operating system was one of Dell’s announcements at the Consumer Electronics Show and could mark where the company is going in the post-PC environment.

Given portable and desktop PCs represent over half of Dell’s income moving away from those markets is going to be a major change in direction for the company.

A change is though what the company needs with revenues down 11% on last year which saw profits nearly halved.

Whether going private or staying public will allow Dell to recover its profitability remains to been seen, but management could probably do without the distraction of answering to stock markets while dealing with a complex, challenging task.

Both Dell and Survey Monkey are showing that there isn’t one path to raising funds for technology companies, in fact there’s plenty of businesses raising money privately without the razzamatazz of high profile venture capital investments.

It may well be though that we’re seeing private companies coming back into fashion as individual investors see the advantages in businesses with good cash flows rather then the hyped loss leaders which have dominated Silicon Valley’s headlines.

Image of Wall Street courtesy of Linder6580 on SXC.HU

 

Dec 092011
 
the online world can be a playground but social media can hurt a business

This article originally appeared as The Business Playground on Smart Company.

Last week, I was lucky to be invited to talk about digital citizenship with school kids and their parents in the Griffith area.

The concept of “digital citizenship” is pretty simple – your behaviour online should be no different from how you’re expected to conduct yourself in the playground or business world.

When talking to some of the parents about the issues their kids face, it stuck me just how seriously most of the concepts like being accountable for your behaviour, safe computing and avoiding bullying are as applicable as much to business as the schoolyard.

Bullying in the workplace is pretty common and – as the tragic case of a young waitress who killed herself after being bullied at a Melbourne café shows – employers are directly responsible if they don’t control it.

While the Melbourne case didn’t have a digital aspect, what employees put up about their co-workers on social media sites or on blogs or in emails can be bullying as well.

Making things worse when social media or the web is involved is that most of the evidence is in writing and difficult to erase.

Safe computing, such as creating strong passwords and not sharing them, is one important part of being safe online.

Just as kids get into trouble by sharing their passwords with their friends, so too do businesses that common login details for their key systems and services.

Some weeks ago there was the story of a Texas waterworks that was hacked because their systems had a simple password.

No doubt the login was kept simple to make things easy for staff and management, just like a 12-year-old sharing their Minecraft or Moshi Monster accounts with their big brother or best friend.

Being accountable for your behaviour is probably something both kids and business people struggle with; just as kids don’t understand that taunting their friends through a Facebook page has real life consequences, many managers and entrepreneurs forget that laws and professional standards apply online as much as they do in any other area.

Of course in business, it’s not just ourselves that can cause problems – our staff can get us in trouble too. Employees need to know that upsetting co-workers, customers, suppliers and competitors is unprofessional and can cost them their jobs.

Having a staff acceptable computer use policy makes it clear employees are responsible for work related comments they make even on their personal accounts outside of working hours is now essential for all enterprises.

In many ways, business is just like being in the playground. It’s usually fun, but when things go wrong it can be painful in many ways.

Just as schools are on the look out for digital trouble among students, watch out for similar pain points among your staff.

Dec 082011
 
how easy is it to make money online

“One day I’m going to buy a whole pile of junk PCs from a company that’s gone bust and sell them at an auction like this,” said Mark, an old business partner, as I lost a bet that a group of almost valueless laptops wouldn’t be sold for more than $10 each.

The media release behind yesterday’s article on protecting USB data found on attracted criticism about Cityrail’s attitude towards privacy – which is fair enough as good manners, if not privacy laws, dictate you’d wipe someone else’s data before giving a drive away.

More notable in the IT News article is the comment that Paul Ducklin, chief technology officer at Sophos, “was shocked when the auction price was nearly twice the average retail value of the USBs.”

Paying over the odds for second hand technology is a trap many fall for, the average consumer doesn’t comprehend just how much technology depreciates or the risks, such as malware or defective hardware, that could be found when you finally take that computer bought at auction home.

The main attraction of auctions is that people believe they are getting a deal, the idea things were dirt cheap on eBay drove the service’s growth for much of its first ten years.

Of course that hasn’t been the case for some time and many people paid a lot of money for junk they didn’t need even when things were “cheap”.

The only way to really get a deal at auction is to know the retail price, then factor in realistic depreciation and the risk of buying a dud.

My rule of thumb at those IT auctions I used to attend with Mark was that when the bids passed more than a third of the retail price, people were overpaying. I rarely bought anything except office chairs and the odd filing cabinet.

I haven’t heard from Mark for a while, I suspect his business plan didn’t work out when he overpaid for some surplus equipment from a liquidator.

Feb 032011
 
stock investments.

Goldman Sachs’ recent $500 million investment in Facebook that values the entire business at fifty billion dollars raises the question, can a business that was founded in college dormitory seven years ago really be worth that sort of money?

It is possible Facebook is worth that sort of money, but to figure out if it really is, we have to crunch some numbers. So here is a back of an envelope calculation.

Learning from others

The first thing we need to look at is similar examples, the closest comparison is Google who were launched on the stockmarket shortly after Facebook were founded and today have a market worth of $195  billion.

So Facebook’s investors are valuing the business at about ¼ of Google’s size. Yahoo’s stock analysis of Google allows us to look at the rough numbers.

Income

Currently, Google is earning 29.3 Billion and making a profit of 8.5billion for a Price to Equity (P/E) of 23.26.

To justify a 50 billion dollar valuation on similar rations, Facebook would have to make around 2 billions dollars profit on revenues of $8 billion .

Facebook is reported to have made $1.2 billion in sales with $355 millon profit in the first nine months of 2010. If we extrapolate that, crudely assuming no revenue growth in the last 3 months, we come to 2020 earnings of $1.6 billion and roughly $450 million profit.

So Facebook has to grow revenues and profit by a factor of five, based on the same ratios as Google, to achieve the $50bn valuation. Where could this come from?

Advertising revenue

The bulk of Facebook’s current revenue comes from advertising, according to Inside Facebook in 2009 all but $10million of their $660 million earnings came from one form of advertising or another.

Online advertising is going to continue to grow spectacularly, a 2010 Morgan Stanley research paper illustrated (on slide 25 of the previous link) how advertisers will have to increase spending onling by $50 billion to match the Internet’s share of media consumption.

It’s a fair assumption that Facebook, as the biggest social medial platform, will get a large slice of that $50 billion. If Facebook were to capture 10% of the market’s growth, they’d achieve their valuation easily.

We should also consider that most of Facebook’s revenue is coming from the United States and they barely touched international markets, so there’s even more potential growth in their advertising revenue.

Games revenue

One of Facebook’s biggest growth opportunities comes from the games. Games like Farmville and Mafia Wars are proving popular with the user base; Zynga, the developer of Farmville, itself has a projected market capitalisation of $5.8 billion.

The global games business is valued at $105 billion dollars and much of this market is moving to web based, online platforms. Should Facebook based games grab 10% of that market, the platform’s 30% cut would see another 3 billion go into Facebook’s revenue, most of which would be profit.

The credits market

Related to the games market is the sale of credits for purchases of games and other features like virtual, and real, gifts and products.

It’s almost impossible to quantify what that market would be but already credits have gone on sale in US stores like WalMart and Best Buy and the virtual world site Habbo Hotel reports 2010 credit revenues of 4.5 million Euros on a user base that is a fraction of Facebook’s size.

So is Facebook worth $50 Billion?

Facebook’s fifty billion dollar valuation is feasible. That’s not to say there aren’t risks, it’s possible Facebook could turn out to be another fad like Myspace or that users might decide to value their privacy over Facebook’s benefits.

While it’s not an investment you’d like to see your grandmother in as a safe source of retirement income, for risk tolerant Russian fund managers and high income clients of Goldman Sachs, it’s a punt worth taking.

Jul 182010
 
Kennedy Nixon Presidential Debate 1960

In the 1960 US Presidential race, Richard Nixon’s campaign was thrown off course when his team misunderstood how the new medium of television worked from politicians. Today’s political candidates are facing the same challenges with the Internet and social media.

Social media and the internet are great platforms for politicians to talk directly to their constituents without going through the filters of mass media however there are risks for the clumsy and ill-prepared.

The main risk for politicians, and businesses, is the Internet increases accountability and magnifies gaffes; a mistake in a remote town that may not have been noticed by the press ten years ago can today be the lead story on the national evening news thanks to an audience member with a mobile phone.

Social media increases that accountability as every tweet, Instagram post or Facebook update is effectively a public statement making these services powerful tools that need to be treated with respect.

1. You’ve put it in writing

As soon as a tweet, update or email is sent or published, it’s in writing against your name. Once you’ve posted it, it’s impossible to deny it – don’t even think about using the lame ‘my computer was hacked’ excuse. So don’t put on the Internet what you wouldn’t write in a letter or memo.

2. Everything you do online is permanent

Even if you delete an email, tweet or blog post after sending there will always be a copy somewhere. Nothing on the net is ever completely deleted and if it’s in the slightest bit controversial assume someone will make a copy. Think before pressing send.

3. All online comment is publishing

Prior to the Internet, publishing involved owning or hiring a printing press, radio station or television studio. Today anyone with a PC, tablet computer or mobile phone is a publisher. Every time you press “submit” you are publishing a comment with all the same potential consequences as writing an article or campaign flier.

4. Off line rules apply online

Many people on the net have the idea rules don’t apply online. Those people are wrong, defamation and electoral rules apply online as much as they do offline. What’s more, the Internet magnifies errors and dishonesty. Even if you haven’t strictly broken the rules, you still may find an ethical lapse could sink your campaign.

The difference when you do it online is that the record is permanent and available world wide, that’s why it’s called the World Wide Web.

5. The net makes copying easy

In a digital world, all content is endlessly reproducible, so your material can be copied, altered and distributed easily. This was a lesson learned by a bunch of London lawyers ten years ago. Learn from their mistakes and use it to your advantage.

6. Nothing is off the record

Everything you write on the Internet is on the record; an offhand Twitter comment is just as official as a press conference statement or media release. So keep the smart comments off line. If you’re going to be rude about someone, don’t put it in writing on the net even if the message is supposed to be private.

7. Online private and public domains are blurred

While there are private channels on the Internet, the boundaries between them are not always clear. For instance a Facebook group can be seen by anyone who is a member, so postings in that group can be passed on from there.

It’s also easy to make mistakes; a private Twitter message could go public if you hit the wrong key. There’s no shortage of horror stories where people have been included on email messages that were never intended for them.

Assume everything sent on the Internet can potentially become public.

8. Be transparent and consistent

As a research tool, the Internet gives media, the voters and your opponents the opportunity to quickly verify every statement you make.

If you are going say the dollar collapsed when your opponents were in government, check this really did happen. If your party promises a can of baked beans in every household then details of The National Baked Bean Access Program have to be online.

9. The Internet loves a vacuum

Should you leave questions unanswered, or if you make an empty promise with no supporting information, then you’ll find no shortage of people on the net willing to fill the blanks for you. Leaving people guessing is the quickest way to get an issue spinning out of control.

10. Be careful of delegating

It’s tempting to give the job of social media expert to the youngest staffer or volunteer in the office, however you are responsible for everything written. So if you delegate, think carefully. Blaming an over enthusiastic intern or contractor is rarely a good look even if it is true.

A good example of this was Hugh Jackman’s Sydney Opera Center gaffe which was clearly a Tweet from someone who wasn’t Australian. While for Hugh it was a minor embarrassment, a similar trivial mistake could derail a political campaign or career.

11. Think before you tweet

The best measure for posting on the internet is never to say anything you’d be embarrassed to explain to your mother. In a political context, don’t say anything you’d be uncomfortable justifying to your party leader, whip or the host of a radio talk back program.

12. Engage with your audience

You need to be adding value, while mediums like Facebook, YouTube and Twitter are quite effective for getting out prepared material, that isn’t using those channels to their full potential.

The word “social” in “social media” indicates how these services have become communities where people exchange views and participate. Your Facebook pages and Twitter streams should be engaging voters and acting as a rallying point for supporters. Think of them as a virtual 24/7 town hall meeting.

13. The net is a big playground

The Internet is a perfect democracy. Everyone who chooses to participate has a voice.

This means the informed, engaged and intelligent have an equal voice with the ignorant, deranged and obsessed. While it is important to listen to what the lunatic fringe have to say, you don’t have to engage with them.

14. You are judged by your company

Be careful of joining online groups or being too closely associated with individuals who may be an embarrassment. Facebook is particularly bad for this as you’ll get many offers to join groups. Resist most of the invitations as even the funny ones could backfire.

15. Play nice with the trolls

On the net, you should never get into a fight. As the saying goes; “never wrestle with a pig; you both get dirty and the pig enjoys it.” The same applies with internet trolls.

The Internet is the greatest invention for idiots, giving them a forum to exercise their ideas and find like minded fools. Don’t join, argue or engage with them, you’ll only encourage them.

16. Don’t get clever

One thing the Internet doesn’t do very well is humour, sarcasm and irony. So be very careful with the smart comments as what would be a funny off-hand line at a press conference or walk around could be totally misinterpreted online.

Another problem is context which is easily lost on the net; be careful with statements that could be taken poorly by those not aware of the surrounding circumstances. This is particularly true with Twitter where it can be difficult for bystanders to understand the entire online exchange.

17. The web is worldwide

There’s no such thing as an intimate chat online. Everything you do could be passed on. You may only have a thousand Facebook friends or Twitter followers but if each of them has a similar following, that’s an immediate audience of a million people. Treat each tweet, post or update as if it is going out on the Morning Show or 7.30 report.

Similarly, some political organisers think the web is best for rallying the troops. That’s a dangerous idea as many teenagers have discovered when a horde of gatecrashers have turned up to their Facebook advertised parties. Your political opponents are probably taking as much interest in your posts as your supporters.

18. Don’t deceive

The New Yorker once said “on the Internet no-one knows you’re a dog.” So it’s tempting to set up anonymous accounts and webpages to discredit your opponent or derail their campaigns.

In reality, your posts in dog food forums will probably give you away and all but the most sophisticated hoaxer will leave clues in their digital footprint. Even if you cover your tracks, being mischievous can bring you unstuck.

You need to also keep your volunteers and staff aware of this; by all means let them engage, promote and defend your positions but make it clear that underhand and childish stunts will hurt more than help if they are exposed.

19. The net does not replace other channels

The digital natives will tell you old media is dying and only the Internet matters while older comms people will mutter darkly into their drinks about the net being over rated as a tool. Both are wrong.

Mainstream media and the Internet increasingly rely on each other as sources and distribution channels. Tools like Twitter help journalists find sources and spread stories while the news papers and TV shows provide material for Twitter and Facebook users.

Where the Internet works particularly well is enhancing the “traditional’ channels of community meetings, media appearances, fliers and articles.  What you can’t say in a 15 second TV ad or 500 word article can be expanded on and enhanced online because you aren’t subject to other peoples’ restrictions and guidelines.

20. Experiment and learn

In a risk adverse world it’s easy to ask why you should bother with the Internet as most voters are still getting their information through mass media and advertising spending is still largely used for broadcast ads.

The reason you need to be on the Internet is because your constituency has moved online and the broadcast journalists are online. You need to be listening to them and to understand how issues are developing and how these channels are being used.

As these tools develop, they are going to become more powerful. The politician who ignores them today and misunderstands how the medium works could find themselves being remembered in the same way Richard Nixon was in 1960.

Our society is increasingly using the Internet to debate and develop new ideas. If you hope to be part of those ideas, you need to be part of the debate.

Aug 082008
 

Last January I commented on Commander’s problems and made the point I thought they were doomed. Today they appointed official receivers.

I’ve made a comment on my Cranky Tech blog about the tragedy that companies with brilliant assets like Commander managed to squander them, but there’s many other lessons for Australian businesses which I’m mulling over at the moment and will post here later.

Jul 242008
 

ABC IP TV logoWe’ve heard the promise of delivering TV over the Internet and now the ABC will follow the BBC with an IP TV service.

Coupled with the increased downloads we’ll see from the uptake of smart phones, we’re seeing the end of most Australian ISP’s business model of soaking users with excess use fees.

iiNET has done a deal with the ABC that traffic won’t be counted for their customers using the ABC’s service and you’d have to wonder how long it will be until others offer it.

The interesting thing with IP TV in Australia is just how badly the commercial TV stations are falling behind.

A good example is Channel 7 where their tie up with AOL should have made this easy, but they seem to have lost it. The other two networks have nothing.

Under the current pricing structures it’s difficult to see IP TV taking off in Australia, but this will change. The big question is just how visionary Australian Internet providers are and just how the commercial TV stations will deal with the challenge.